The Risk Professional: US govenment has less than 72 hours to save its finances

Geithner opens his letter with a plain statement: the situation is so serious that the "statutory debt limit will be reached." Unlike most Americans in their use of language, Geithner is often given to understatement: but he does not mean "breached" - that would involve insolvency and that may trigger domestic and global financial meltdown - ratings companies have so far not downgraded US debt but might be expected to do so if the limit is burst. He outlines steps at the disposal of the Treasury Department to "delay that date (when the breach will happen) temporarily."

As the limit gets closer, Treasury can provide "more precision" as to when the limit will be reached. That precision is startling in that it does not say when the money will run out but provides a long stop. But the long stop is closer than is comfortable: "no later than 16th May 2011."

Geithner is courteous when he delivers a public rebuke - and a threat. "This is a projection based on the expected level of tax receipts, the timing of our commitments and obligations over the next several weeks, and our judgment concerning the level of cash balances we need to operate. Although these projections could change, we do not believe they are likely to change in a way that would give Congress more time in which to act."

The system - which is just part of the stupidity surrounding the budget - does allow the executive, in the form of The Treasury - to act if the elected representatives do not. And so, if the debt limit is not increased before it is reached - and in any event before 16th May, says Geithner, he may be forced to take "certain extraordinary measures"

"These actions, which have been employed during previous debt limit impasses, would be exhausted after approximately eight weeks, meaning no headroom to borrow within the limit would be available after about 8 July, 2011. At that point the Treasury would have no remaining borrowing authority, and the available cash balances would be inadequate for us to operate with a sufficient margin to meet our commitments securely. "

In short, the USA will go broke in the second week of July this year at the latest.

"The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations. If Congress does not act by May 16, I will take all measures available to me to give Congress additional time to act and to protect the creditworthiness of the country" he writes.

The problem is worsened because the USA's deficits are so great. And by the fact that Congress has voted expenditure but not the money to meet it. Geithner speaks plainly: "As the leaders of both parties in both houses of Congress have recognised, increasing the limit is necessary to allow the United States to meet obligations that have been previously authorised and appropriated by Congress. Increasing the limit does not increase the obligations we have as a Nation; it simply permits the Treasury to fund those obligations that Congress has already established. If Congress failed to increase the debt limit, a broad range of government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds."

This is where the politicking comes in: The White House - of which Geithner is part - is going to get the blame no matter what happens. As the Republicans have gained power in Congress, the White House spending projects are viewed as excessive. Amongst the targets are "Obamacare" - the healthcare reforms that are already law but which are being gradually eroded by state and constitutional challenges.

The Presidential system in the USA means that all credit and all brickbats are tossed in the direction of the incumbent. For Obama, there is remarkably little credit: he has stumbled over, swerved around or simply not run towards many of the challenges he said he would address when he was campaigning. It is not his fault - at least not entirely. The USA's debt remains horribly enmeshed with the rescues made during the financial system-originated crisis - which despite some headline successes is still a long way from over. Even though some of the recipients of state aid have repaid it - some with handsome interest and some by the sale of shares or other securities at a profit - those recoveries are far away from the total amount that the government invested in preventing total meltdown.

Geithner is exasperated with the system that allows the country's finances to be held to ransom by those jostling for individual interests at the expense of those of the nation. He implies that someone, somewhere, has to say "this is stupid. Find a better way." What he actually says is "This is not a new or partisan judgment; it is a conclusion that has been shared by every Secretary of the Treasury, regardless of political party, in the modern era. "

Some members of Congress have suggested that the Treasury sells its assets. Selling gold, Geithner says, would undercut confidence in the country - true enough, witness what happened when Gordon Brown slashed the UK's gold reserves. Oh, and it's self defeating because, in a fire sale - which is what would be needed in the time available, prices fall. While today's record gold prices might seem extremely attractive, tomorrow's would be bargain basement if the USA tried to sell enough gold to buy itself out of trouble.

How about the investments that the Treasury still holds under the various schemes to bolster the economy over the past three years or so. That would not raise enough and it would create losses that would have to be met by taxpayers - and it would depress the value of similar private sector holdings, he says. What he did not say is that Treasury has already announced such a sale with something of a fanfare. But there were weasel words : it would happen when market conditions were right.

Congress has committed far more money than it can fund. Therefore "immediate cuts in spending or tax increases cannot make the necessary cash available. And, reductions in future spending commitments cannot supply the short-term cash needed."

But if Congress has the brass balls to do it "to avoid an increase in the debt limit, Congress would need to eliminate annual deficits immediately." That, clearly, is never going to happen.

But Congress need look no further than its own reports. The Congressional Research Service, on 11 February 2011, said "the federal government would have to eliminate all spending on discretionary programs, cut nearly 70% of outlays for mandatory programmes, increase revenue collection by nearly two-thirds, or take some combination of those actions in the second half of FY2011 (1 April to 30 September, 2011) in order to avoid increasing the debt limit."

Those are the vote-winning policies that members of both Houses of Congress parade back home when election time comes, as it is to do soon.

And so, Geithner makes plain: in the absence of agreement over a federal budget - which is no nearer because of the complex and divisive system by which it is voted - the country needs to increase its overdraft limit.

Think of it like a board of directors: they can't decide how and on what this year's budget should be spent, nor than they decide how much it should be: each department wants to spend on its own projects and empire building - and even though the company is in trouble, no department wants to cut its costs. But the company has no money anyway except its current income (which does not meet its liabilities) and a revolving credit facility. That revolving credit facility is not about to expire but the limit under it is about to be reached and, when it does, the company will not be able to pay its bills. So the directors agree to increase the amount of credit available under the revolving facility.

There are two problems: if they don't settle down and agree then the new limit will - at some point - prove insufficient.

There is, of course, another fundamental question: why not run the company without borrowing at all?

Oh, yes: because borrowing money that has to be repaid in the future allows the directors to be paid more than the company is earning.

And that's what's happening in the USA - and many other countries. The national tax take (and any commercial income the country may have) is far short of the commitments that are made for the purpose - often - of buying votes. States vie for nationally funded projects, they plead for national assistance for their own budget deficits, they stand - hands out - trying to make a case that their voters are more deserving of federal money than those in some other state.

And, because the hands in the cookie jar are the same hands that decide how many cookies to put in - or how many cookies they will take out even after the jar is empty, and those hands are distorting the national finances - and able to delay the setting of a budget unless their individual interests are served.

That is exactly what is happening. It is exactly why the USA is living on borrowed time, running its finances under a succession of agreements redating the expiry of the previous budget, and running up against a borrowing limit that was once thought to be excessive.

And that's stupid.